AOL Posts Staggering $54 Billion Loss

With a first-quarter net loss of US$54.2 billion, one of the largest ever recorded, AOL Time Warner's earnings news drifted like a black cloud over a week that previously had seemed mostly positive for the technology and Internet industries.

The company's woes are attributable in part to the diminishing value of AOL's $106.2 billion purchase of Time Warner two years ago. In the first quarter, the conglomerate took a $54 billion goodwill charge.

CEO: We're 'Upbeat'

The staggering $54 billion figure translated to a $12.25 loss per share. Despite the dismal showing, incoming AOL Time Warner CEO Richard Parsons said management remains "upbeat" about the company's future.

Indeed, company revenue was up 4 percent from the year-ago first quarter to $9.8 billion. In addition, the company noted, both the AOL and cable businesses reported strong subscriber growth, with subscription revenue increasing 14 percent to $4.7 billion.

But although AOL Time Warner had a robust year in terms of theatrical releases, the content sector's results remained flat, primarily because the company had recorded strong syndication sales in the previous year.

Advertising Hit

The company took a massive hit in advertising and commerce, with revenue dropping 13 percent to $1.8 billion. That decline is not surprising, however, because the slumping economy has taken its toll on the advertising market in general.

The company racked up restructuring costs during the quarter, including $107 million associated with contractual terminations and employee termination benefits.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter grew 3 percent to $2.05 billion, and cash earnings per share increased by 13 percent to 18 cents. That increase was attributed to lower interest expenses and tax payments that offset increased expenses from depreciation and losses from equity investments.

Cash Flow Growth

In one of the report's few silver linings, cash flow grew 174 percent from $472 million in the first quarter of 2001 to $1.3 billion this year. AOL Time Warner attributed the increase to strong cash flow generated by its theatrical releases as well as to improvements in working capital.

The company also benefited from a revamped CNN. The network's ratings rose 50 percent and the number of viewers grew 55 percent. CNN Headline News alone enjoyed a 29 percent increase in viewership compared with the same quarter last year.

Parsons said that when he officially takes the reins from outgoing CEO Gerald Levin in May, his goals will be "producing results quarter after quarter" and "running AOL Time Warner as one company."

The company likely will show a flat to slightly more positive result in the second quarter, its executives agreed. And AOL Online is expected "to be in growth mode in the second half of this year," with growth gearing up to full speed in 2003.